Orthofix Medical Inc. Common Stock (DE) CG 46th Annual Growth Conference
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Good morning, everyone, and thank you for joining us at this year's Canaccord Genuity Growth Conference. My name is Caitlin Cronin, and I am one of the medical device analysts here at Canaccord Genuity. I am pleased to be joined this morning by Orthofix, a global medical device company specializing in differentiated orthopedic and spinal solutions. With me today are Massimo Calafiore, CEO, and Julie Andrews, CFO. Thank you for joining us. Before we begin, I want to remind everyone of any relevant disclosures, which can be found on our conference and/or firm website. We will begin with a fireside chat. I will try to leave a couple minutes at the end for any questions from the audience. Let us start off with Q2.
You guys raised guidance on the Q2 call. This comes after having lowered expectations and removing your long-range targets intra-quarter, post the CMS bone growth stimulation reimbursement changes, which have since been reversed. Guidance, while raised, it was lower than it was prior to the bone growth stim noise. Maybe if you could walk us through the pieces of the updated guidance, including the CMS impact and some newer pieces of that guidance change.
Yeah. Thank you, Caitlin, and happy to be here again. Before I let Julie answer the question, I want to step back and remind everybody the progress that we made in just two years. Since the beginning, we more than doubled our EBITDA since the inception. We moved from more than $100 million user cash, almost break even last year. We arrive today, after we made the very deliberate choice about how to strengthen our business, how to make our commercial organization more predictable, and with a very clear path of innovation moving forward. All of this drove the decision that we just made.
Yeah. I will answer your question regarding guidance.
Our updated guidance reflects several moving pieces. On the positive side is the reimbursement restoration, as well as a European MDR-related inventory purchase in the back half of the year, and strengthening that we are seeing in both our biologics and limb reconstruction business. That is partially offset what we have talked about in the spine business, on the smaller U.S. spine distributors, where we are seeing a steeper decline than we had originally anticipated for that business. That kind of makes up the pieces behind the guidance reset.
Mm-hmm. How are you thinking about the cadence of growth and profitability through the remainder of the year, just given that updated guidance?
Yeah. On our call last week, our comments around that was Q3 we expect to be really in the same range as Q2, from a revenue perspective. Profitability will follow that. We expect a little bit of expansion versus prior year EBITDA margin. Q4 is where we expect the majority of the European MDR inventory purchase will be in Q4.
Anything to call out here from a procedural volume demand standpoint?
No. I would say we see procedural volumes being relatively consistent. We were encouraged by what we saw in our therapeutic solutions business, with really showing resilience there in spite of the reimbursement noise in the quarter. Overall, pretty consistent procedural volumes.
Yes, the 80% of the distributors, our top 40 distributors, they kept growing above market, so no noise from this point of view.
Turning to therapeutic solutions, maybe a little bit more color on this segment. I think there has been a lot of noise the past few months, as you guys mentioned, with the down-classification of the products by the FDA, the CMS pricing decrease, then reversal of that decision. Can you speak to what really drove the reversal of that initial decision?
Yeah, I think that was a very concerted effort that we spear, being the market leader in the space. A lot of work that we did internally with our team, driving a very positive interaction with CMS. We were able also to connect with MDM and some of our competitor in the space to create a unified voice about the decision that was made. If you think about, there was a lot of skepticism about what we did was pretty unprecedented for CMS. Very pleased that we rectify a decision that clearly was made, let's say, a little more abruptly from the government decision.
Good. Mm-hmm. Anything in that about a month where that pricing change had occurred, that there was an impact in Q2 or nothing that you really saw?
Yeah. So we saw about a $1 million impact over that 6-week period. So we will actually be able to recoup that revenue in Q3, as well as the proceeds from the billing.
Great. The FDA down-classification remains in place. How does this down-classification change the market dynamics or your own approach to the segment going forward?
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